Higher spenders would be better than a new strategy

Marc Sidwell was Executive Editor for City A.M. and is the author with Anthony O'Hear of The School of Freedom (Imprint Academic, 2009).

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Marc Sidwell

WHAT does the future of retail look like? Clicks-and-mortar is the buzzword of the moment (Tesco calls its version Clicks and Bricks), a Frankenstein-like stitching together of physical retail locations with online, anytime ordering. When Home Retail Group (HRG) announced its strategy to turn around Argos yesterday that’s very much what it had in mind, although it resisted trendy puns.

For example, while the plans got attention for announcing the closure of 75 stores, it is just as important to note that the closure will only affect 10 per cent of the catalogue retailer’s stores at most, with some simply being relocated. It is central to the new five-year plan to use the existing physical distribution system to provide “market-leading immediacy of fulfilment”. As the group’s statement put it: “Having a strong local presence will be strategically important in a digitally-led future.”

All this proves that HRG shares the latest thinking about how virtual commerce can benefit from real estate, and sees it as a way to use its physical stores to leapfrog into the future rather than them being a millstone from an outdated business model. But will such up-to-the-minute optimism work?

Some analysts remained sceptical. And although HRG saw its shares initially rally, the share price lost most of its gains as the day wore on.

However much Argos puts its own house in order, it will face fierce competition. The more Argos moves purely online, the more it will face the might of Amazon head-on. The more it builds a hybrid clicks-and-mortar offering, the more it will have to compete with supermarket giants, which also have an enviable local network of physical stores and an increasing range of the sort of non-grocery items in which Argos has specialised.

The real problem for Argos is that it has such extraordinary brand penetration and so little to show for it. It claims to be the second most visited internet retailer in the UK, with 440m visits a year, and that over 70 per cent of UK households shop at Argos at least once a year. But while this set of half-year results was stronger than expected for Argos, its operating profits have been falling steadily. With its customers often on lower incomes, Argos needs an economic boom to get them spending again. Investing £100m to put itself on-trend won’t solve that.

VAT ATTACK
You can count on the EC – and George Osborne – to get its tax strategy exactly backwards.

Thanks to EU law, Britain’s VAT rules for ebooks have long been absurd, with no VAT payable on physical books but 20 per cent tax due on the virtual kind. France and Luxembourg broke ranks at the start of the year, slashing the tax on this rapidly-growing innovation. Rather than joining the revolution, George Osborne has run to complain to the authorities and now the EC has given the offending parties 30 days to raise their taxes again. The rules are on Osborne’s side, but it would be better if he were on the side of tax competition.